Service helps uber-rich keep it in the family

PUBLISHED : Sunday, 23 September, 2007, 12:00am
UPDATED : Sunday, 23 September, 2007, 12:00am

Family offices, a financial utility reserved for that small percentage of the extremely rich and successful people, are increasing in popularity in Asia as the region's wealth continues to grow.

In a world where the affluent look at securing and enhancing wealth for the next generation, the family office moves further with the suggestion now for the uber-rich that they should be looking perhaps a century ahead and taking their massive wealth to generation three.

Paul Woodcock, manager, business development, Lloyds TSB Offshore Trust, said given the increasing prosperity in the region, 'ultra high-net-worth individuals and families in Asia are becoming increasingly aware of family offices and what they can do'.

'The number of family office and private trust company arrangements are becoming more prevalent year on year,' he said.

'Several bespoke service providers set their stalls out to attract purely international family office business, rather than the more generic service that caters for standard private client arrangements.

'The scope of services that a family office provides is heavily diversified - it's really dependent on the circumstances of the family in question. It's a true tailor fitting operation.'

Mohamed Bashir Shariff works for one such 'tailoring' operation. As Asia adviser for Lowenhaupt Global Advisors, he said his company was expanding its global operations and in the process of setting up offices in Hong Kong, India and Australia in response to the surge in demand for this exclusive service.

'It's still early days in the sense that many people don't understand what a family office is, but it means exactly what it says - it takes care of family wealth and relieves a family of the burden of managing that wealth.'

Mr Shariff said demand for family offices had surged 'with the growth of wealth in Asia, with China and India and of course Hong Kong, which has always been the forerunner at creating wealth, Japan with its traditional wealth and Australia with the emergence of new wealth'.

'With the explosion of the IT industry and money markets, many people are getting richer quicker, and the old rich are accumulating more wealth,' he said.

'But on the other side, families are getting smaller, so there's a huge problem of what to do with all this extraordinary wealth - where do you put it and how do you dispense with it.

'Hong Kong has been in this market for about 15 years now, Singapore is going that way and Australia as well.'

Mr Shariff said anyone with anything less than US$200million would have a tough time supporting a family office, with the sorts of fees required to equip the office competently.

'Typically it's an office which caters for a family's needs from AtoZ, taking care of the complete family architecture - grandson, grandfather, the whole family tree. It's highly customised for each family, it's not conflicting, it's focused and of course today with children and families living all over the world, it has to have a global feature to it and be IT-driven as well. It's fully manned with the family accountant, the family lawyer or perhaps the family fund manager, depending on who the family has retained. We continue to retain them and they play a role within the family office.

'From secretarial to accounting to banking, travel arrangements, children's school arrangements, having trusts set up - it's a complete approach that relieves the family of the burdens of their wealth, wondering if financial issues or tax matters have been settled, even parking tickets, we take on everything.'

Mr Shariff said wealthy families were 'getting tired of talking to private bankers because they are product oriented, whereas we have no product to sell - our product is pure advice'. The family office product did not compete with the traditional vehicles of trusts, fund managers and private bankers.

'Funnily enough we actually work with them. If a family already has Morgan Stanley or JP Morgan with them, we actually try and enhance their role and analyse whether their performance can be better - that's one of the ways we earn our fees. By doing a thorough examination of the way fund managers perform, we can actually improve the performance of fund managers over time.

'We also try to match the portfolios to the family philosophy - whether the family prefers a certain charity, or if it is a Muslim family with investment preferences for example, we try to align it with the family.'

Mr Woodcock warned there were several pitfalls as well as advantages to a family office.

'While costs and control count as a major motivational factor, it is imperative that the integrity of roles within the office take account of tax, regulatory and legal boundaries. In addition, tensions may arise where family members do not take such an impartial stance on decision making.

'However, costs of a professional corporate trustee managing several trust arrangements on behalf of a family can become substantial. It might be cost effective for the family to restructure and establish a family office so as to consolidate on fees.'